In a recent report, Goldman Sachs Research forecasts that India’s economy is on track to surpass the United States’ and become the second-largest in the world, behind China, within a few decades. The investment bank’s analysts project that India will surpass the US by 2075, reaching a Gross Domestic Product (GDP) of $52.5 trillion, which is $1 trillion higher than the estimated GDP of the US at that time. According to the report, China is expected to surpass the US as the world’s largest economy in the 2030s, with a projected GDP of $57 trillion by 2075.
Demographic advantage and capital investment drive India’s growth potential
Goldman Sachs Research highlights India’s demographic advantage as a key factor driving its economic growth. With a population of 1.4 billion, recently becoming the world’s largest, India possesses a favorable ratio between its working-age population and its non-working or dependent population. Santanu Sengupta, India economist at Goldman Sachs Research, explains that India’s low dependency ratio over the next two decades provides a window of opportunity for the country to leverage its manufacturing capacity, services sector, and infrastructure growth.
The report also emphasizes the role of capital investment in India’s future growth trajectory. As falling dependency ratios, rising incomes, and financial sector development contribute to an increased savings rate, India is expected to have a larger pool of capital available to drive further investment.
Challenges and risks to India’s growth
While Goldman Sachs remains optimistic about India’s growth prospects, the report acknowledges potential challenges hindering its trajectory. The country’s labor force participation rate, which has been declining over the past 15 years, needs to be increased to fully unlock India’s growth potential. Particularly, the report highlights the low labor force participation rate among women as a concern. Only 20% of working-age women in India are currently employed, indicating a significant gender disparity in the labor market.
Additionally, the report identifies net exports as a drag on India’s growth due to the country’s current account deficit. However, despite these challenges, Goldman Sachs believes that India’s innovation, technology, higher capital investment, and rising worker productivity will contribute to its future economic success.
India’s current economic position and future projections
As of now, India holds the fifth position among the world’s largest economies, with a GDP of $3.73 trillion, according to the International Monetary Fund. It follows Germany ($4.3 trillion) and Japan ($4.4 trillion) and is preceded by China ($19.37 trillion) and the United States ($26.85 trillion).
Goldman Sachs’ projection aligns with the predictions of other financial institutions, such as S&P Global and Morgan Stanley, which also foresee India becoming the third-largest economy by 2030.